The big challenge for the housing market today remains the lack of inventory, even though interest rates are rising, NAR Chief Economist Lawrence Yun said at his monthly press conference earlier this week in which he released the latest existing-home sales data from the association.
Rising interest rates are a concern, particularly in high-cost areas, but as of right now rates remain historically low and their impact is not yet showing up in the numbers, particularly in the Midwest and lower-cost areas. The national median rate today is 4.07 percent, almost 40 basis points higher than a year ago, when it was 3.68 percent. So what rates do in the future will be extremely important.
But, at least for today, the bigger concern remains too few homes available for sale, especially among homes in the lower price range. The lack of inventory is fueling rapid price appreciation, which Yun says is bad for the market. “This double-digit price appreciation is not sustainable and it’s not healthy. We need to tame the price growth.”
On a year-over-year basis, price growth last month was 13.5 percent on a national basis. In the West, the growth was even greater, about 20 percent. (Much lower growth in the Northeast, about 7 percent, is what brings the median down to the 13.5 percent.)
Yun says the market needs new construction more than anything, so he was disappointed that permits actually went down last month. Since the recovery began, construction has picked up a bit, but it’s remained well below where it needs to be to have a material impact on inventories, so that permits actually dropped last month is not good. “Very disappointing,” Yun said about last month’s report on housing starts.
On the whole, the upper-end market is doing a bit better than lower-priced segments, mainly because it’s the lower-priced segments that aren’t offering buyers a lot to choose from, so the sales rate for homes at about $100,000 or lower is just not growing at the same pace as higher-end homes.
On a positive note, distressed sales continue to fall and now comprise about 15 percent of the market, down from 26 percent just a year ago.
The picture that Yun painted is of a market that continues to improve despite the latest dip in sales and that’s not yet feeling a pinch from rising interest rates but is continuing to feel a pinch from the lack of inventory, which is driving too-rapid a rate of price appreciation.
Existing-home sales are up 2.1 percent in October from the previous month and home prices are up more than 11 percent from this same time last year, to $178,600. Sales are being driven by strengthening fundamentals—the improving jobs picture, rising rental rates, continuing low interest rates and housing affordability—and prices are gaining on reduced supply.
NAR Chief Economist Lawrence Yun said yesterday in his national press conference in Washington to release the association’s latest sales figures says inventory shortages are cropping up in markets across the country. Although that’s good for home price gains in the short-term, in the long-term it’s a negative that reflects weak home construction by builders. Ideally, supply growth will increase to provide a healthy counterbalance to demand so prices can rise at a sustainable pace.
In any case, due to the steady price gains home owners have seen, total home owner equity has risen by $760 billion so far this year. Should home prices rise 5 percent for the year, equity gains could reach $1 trillion by year’s end, a healthy development for the economy, Yun says.
Access NAR’s press release on the latest home sale numbers.
Home sales dropped a bit over the last month but they remain strong compared to this time last year and price gains remain robust.
NAR Chief Economist Lawrence Yun released NAR’s September 2012 existing-home sales figures on Friday last week, and they’re down 1.7 percent from August figures, to an annual sales pace of 4.75 million units. That’s still 11 percent above where they were last year, suggesting that the long-term upward trend continues.
The upward trend of prices continues as well. The median price, at $183,900, is up a strong 11.3 percent from year-ago levels. Part of that increase stems from the mix of houses being sold today. We’re seeing fewer distressed sales as a percentage of the market, and prices are reflecting that more favorable mix. But Yun said on Friday that the increase is also reflective of genuine price appreciation. Indices that look at price changes of the same assets over time, like Case-Shiller and the Federal Housing Finance Agency price index, are showing similar price increases. So, the gains aren’t just from a change in the mix of homes being sold; they’re also from asset appreciation, Yun said.
Two other notable data points from Friday’s release:
1. Inventory is dropping, so you can expect upward price pressure to continue. The supply of homes available for sale is now at 5.9 months, the first time in a number of years the number has dropped below 6 months. Total inventory stands at 2.32 million units.
2. Time on market has dropped to a median 70 days, with roughly a third of all sales closing in 30 days or so. At this time last year, the median time on market was more than 100 days, so the trend is positive.
You can learn more in the 5-minute video from Yun’s press conference above.
Access NAR’s news release on the latest figures.
Existing-home sales last month were up almost 8 percent from July and home prices were up 9.5 percent from a year ago, to $187,400.
“More buyers are taking advantage of excellent housing affordability conditions,” NAR Chief Economist Lawrence Yun said in his national press conference today in Washington in which he released the latest home sales figures. “Inventories in many parts of the country are broadly balanced, favoring neither sellers nor buyers. However, the West and Florida markets are experiencing inventory shortages, which are placing pressure on prices.”
Home prices are up partly because the mix of housing is shifting toward more normal sales, with distressed sales comprising a smaller share of the market. But prices are also up because of appreciation, which NAR data as well as other price indexes show. Case-Shiller and the Federal Housing Finance Agency both show prices up based on repeat sales, which track price changes without regard to changes in the sales mix.
The positive sales and price trends come despite lenders’ continued tight underwriting practices. Yun said these overly tight policies could pose problems five years down the road, since mainly households with strong incomes and good credit profiles are getting loans today. That means a few years down the road, as homes appreciate, households with less income and less strong credit profiles won’t have been able to take advantage of today’s low home prices and historically low interest rates. That would leave many responsible households that could be successful owners today unable to get on the home ownership ladder.
Forthcoming rules, such as the qualified mortgage (QM) rule, which the Consumer Financial Protection Bureau (CFPB) is writing to meet requirements in Wall Street reform legislation enacted two years ago, could exacerbate the problem, Yun said. NAR wants the rule to be flexible enough so lenders can make safe and affordable loans to responsible buyers, but there’s a concern that the rule could be too restrictive and only those with the best credit profile would be able to get affordable financing.
The video above is from Yun’s press conference today, September 19, in which he report’s August 2012 home sales numbers.
Signs continue to come in that the housing market is seeing slow but steady improvement, although overly tight lending standards continue to hold back the market given the amount of pent-up demand that’s out there.
Existing-home sales increased 2.3 percent in July from a month earlier to a sales pace of 4.47 million. The new pace is more than 10 percent above where it was at this time last year.
And the median home sales price is up significantly as well, to $187,300, or 9.4 percent higher than this time last year, although NAR Chief Economist Lawrence Yun in his monthly press conference in Washington yesterday attributed the gain to an increase in sales of high-cost homes. Sales of homes at the $100,000 or less price point declined nationally, reflecting the continuing shortgage of distressed and other inventory in markets around the country.
The trend is in the right direction, and given the constraint buyers face in obtaining financing, the growth in volume and in price is encouraging. But the picture could be considerably brighter, Yun thinks, if lenders returned to more normal underwriting standards–that is, standards that were in place for years prior to their loosening in the housing bubble years. As it stands, lenders have tightened way too much in response to the market excesses several years ago.
“Housing could easily be much stronger without these abnormal frictions.” he said in his statement released with the latest sales figures yesterday.
Existing-home sales last month were down slightly but they remain at about a 4.6 million level, as they have since January, so if that level holds for the remainder of the year we could see a strong 2012, NAR Chief Economist Lawrence Yun said at a press conference in Washington today.
The relatively strong performance this first quarter stems from the improving economy, Yun said. But it also has to do with the pent-up demand that’s been building for the last several years. At some point, people doubling up or living with parents will start forming households, as they always do when the population increases, and many of these households will buy. Yun thinks we’re seeing signs of this now.
Along with the relatively high level of sales, inventories are down, which helps on prices, and that’s reflected in the numbers. The national median home price is up more than 2 percent from last year.
It’s possible larger homes are being sold (normal for this time of year), so that could account for some of the price increase. But also distressed sales as a percentage of the market are starting to decline. So, that could be having an impact on prices, too.
All in all, despite the slight dip in volume, the picture looks relatively good going into the spring buying season.
When NAR releases its existing-home sales (EHS) numbers next week for the month of November, the figures will reflect what’s known as a rebenchmarking. This is an adjustment that researchers do periodically to help ensure the continued accuracy of their data sets. The federal government does it with its data sets, including its all-important calculation of the U.S. gross domestic product (GDP). Research entities do it with their data sets. And NAR has been doing it with its EHS numbers since it launched that data series in the late 1960s.
With this rebenchmarking, NAR is using a U.S. Census survey called the American Community Survey to calculate the number of annual home sales and create a new benchmark, or baseline, for tracking increases and decreases in existing-home sales. (It doesn’t just use MLS data because that data only captures home sales listed through the MLS, which is most but not all sales.) It then adjusts its baseline based on a number of assumptions, including the portion of sales that are for-sale-by-owner (FSBO) transactions.
Against this new benchmark it calculates monthly updates using MLS data. Thus, if sales go up 8 percent in the sample of MLS data, then NAR increases the sales against the American Community Survey benchmark by 8 percent.
This is the same process NAR used the last time it rebenchmarked its EHS data, about 10 years ago, although for that earlier rebenchmarking it didn’t use the American Community Survey; it used data from the decennial census long form. NAR used the long form because it provides detailed information from which NAR can base accurate home-sale estimates, and it would have used that form again this time but the U.S. Census Bureau stopped using the long form after the 2000 decennial census.
For consumers, the most important thing to know is the rebenchmarking has no impact on home price data. The changes only impact the number of sales. Nor is there any impact on local MLS home-sale figures. The only change is to the reporting of home sales at the national level.
In the video above, NAR Chief Economist Lawrence Yun talks with REALTOR® Magazine Editor in Chief Stacey Moncrieff about the why and the how of the rebenchmarking process. You can also learn more in a detailed Q&A he prepared.
Other resources on this topic:
By Robert Freedman, senior editor, REALTOR® Magazine
In response to media coverage about the calculation of existing-home sales, NAR Chief Economist Lawrence Yun yesterday walked reporters through the association’s methodology for calculating its monthly EHS figures as part of his regularly scheduled press conference in Washington.
NAR each month collects home-sale data from a sampling of MLSs around the country. That monthly data is compared against the previous month’s data to derive the upward or downward shift in the home sales pace. Thus, if the participating MLSs report 5 percent fewer home sales, when all of their data is tabulated on a national basis and seasonal variations are accounted for, then NAR’s monthly EHS report reflects that.
To anchor its data, NAR every 10 years compares its figures to the findings of the decennial census, which up until 2000 sent out a “long-form” questionnaire to U.S. households to generate rich data sets on household activity, including home buying. In 2000, that long-form census identified the home sales figure at 5.2 million, and NAR “rebenchmarked” its EHS data sample based on that number.
Such periodic adjustments are standard among researchers to maintain the accuracy of any data series that relies on extrapolations from a baseline. In 2000, NAR adjusted its data by 13 percent to bring it into alignment with the census data.
NAR is now developing a new way to rebenchmark its data, because the Census Bureau no longer sends out its long-form questionnaire as part of its decennial census, leaving NAR without that data set to use as its rebenchmarking standard.
Yun said he is convening a panel of some 20-30 economists and others who follow home sales on a regular basis for their input as NAR puts in place its new rebenchmarking procedure. Depending on the procedure that’s used, NAR could rebenchmark its MLS data samples more frequently, possibly as frequently as every two years or even every year.
More frequent rebenchmarking could help minimize the statistical “drift” that occurs in any regular sampling of data. Yun said he can’t predict how much, or in what direction, EHS data has drifted since the 2000 rebenchmarking, but that some degree of drift is expected. Some MLSs have consolidated, markets are seeing fewer for-sale-by-owner transactions, and some sales might be appearing in more than one jurisdiction because agents are increasingly listing homes in more than one MLS: all of these are possible variables that could lead to drift in EHS data trends, Yun said.
Similar kinds of “statistical noise” leads to drift in home-sale data tracked by other entities, Yun said. For example, data samples that rely on FHA, Fannie Mae, and Freddie Mac closings don’t capture all-cash transactions, which today comprise more than a third of home sales. Mortgage purchase applications, though a very useful metric for directional movement on a week-to-week basis, had a huge upward drift in the 1990s, which would have implied quadrupling of home sales during that decade. And data that relies on court house recordings could be showing a downward bias because of the lag in recordings of auction sales, short sales, and foreclosure sales, among other things.
In the video above, Yun talks about NAR’s EHS calculation methodology and the development of a new benchmarking procedure.
NAR Research has issued the following Q&A in response to some claims about the computation of NAR’s existing-home sales data.
NAR Existing-home Sales FAQ
Home sales measurements have shown to differ at times as reported by NAR and some outside organizations. Here are the facts and background you need to know.
Q: How are NAR home sales computed?
A: NAR collects sales data from numerous MLSs, with a reporting sample of about 40 percent. If data computes to be a 5 percent increase from one year ago then we say home sales rose 5 percent from one year ago.
Q: What about 5 million home sales? An increase of 5 percent is understood, but how is 5 or 6 million home sales computed?
A: A base figure is used from Census 2000 where one can compute how many homes were bought. If you recall there was a long-form of Census back then which asked questions about whether you moved or not and whether you bought a home. Based on this, one knows that 5.2 million existing homes were sold in 2000. Note that this benchmarking process does not use any data from MLSs. Hence, it is considered clean. With this base figure, we then apply the percent changes to sales obtained from MLSs. So if MLSs data addition say a 5 percent increase, then we would say there were 5.4 million home sales.
Q: How can NAR sales data drift away from true measure?
A: It is not definitive if NAR data has a measurable drift other than normal small statistical noise that may arise from not using all MLSs and from any data entry error or local MLSs sending wrong data to NAR. In statistics, one just assumes the positive and negative noises cancel each other out. However, it is possible for this statistical noise to drift mostly in one direction and hence cumulatively add up over many years. In our last benchmark in year 2000, we found the reported home sales had a 13 percent upward drift compared to what Census data implied. NAR then revised the past 1990s data to match up with the Census data.
Q: How are other home sales data computed?
A: Most other data comes from courthouse recordings. Generally, they make some assumptions about non-covered areas. Because of improved electronic recordings, they claim to capture more data and more quickly than in the past.
Q: When will the new benchmarking take place?
A: In 2010 Census, a long-form questionnaire was not used. Therefore, the Census no longer asked about whether people moved and bought a home. So another brand new benchmarking process is needed. NAR has already been in contact with all key housing economists in the industry and government agencies and a few in the academia about finding a new benchmarking process. We expect a new clean, agreed-upon benchmark figure by the summer of this year.
In addition, we will be determining a new way to re-benchmark on a more frequent basis, possibly annually to lessen any drift that can accumulate over time. This frequent re-benchmarking, rather than wait every 10 years, is needed since the Census no longer collects the long-form questionnaire. As with all benchmarking, we will be working with various outside housing economists to develop a new-agreed upon method.
By Robert Freedman, senior editor, REALTOR® Magazine
A government-mandated foreclosure moratorium would take about 20 percent of homes available for sale off the market, and that’s something that would hurt the home sale market today and hinder the recovery that’s so badly needed tomorrow, NAR Chief Economist Lawrence Yun said in his monthly existing-home sales press conference yesterday. (See video)
Yun said the banks are right to look at their foreclosure processing to identify their paperwork mistakes. Those mistakes need to be fixed, because buyers are rightly concerned about buying foreclosures if there’s any uncertainty about the validity of the title. But right now that should be as far as the response goes in addressing improperly processed foreclosures, he said.
Just the threat of a moratorium is impacting sales. NAR surveyed about 2,000 of its members and found about a quarter of them have had a buyer pull out of the market out of concern over a moratorium.
Yun didn’t say this, but the statistics suggest buyers are concerned the rug will get pulled out from under them if they try to buy a foreclosed property.